When does SMSF become cost effective?

12 Nov 2018


For years now there has been debate over a suitable balance to commence a self managed super fund (SMSF). Most articles you read state that somewhere between $250,000 and $300,000 is about where it becomes cost-effective. This works on approximately 1% per annum in running costs, give or take. As your balance continues to grow above this level, the fees as a percentage of the balance will generally reduce as most SMSF fees are flat dollar based. 


If we look at an example where you have a balance of $150,000 and the running costs of your fund are $3,000 per annum, this means that the investments inside your fund need to generate at least 2% per annum return before you start to make a positive net return (ignoring inflation). 


Of course the decision to start a self managed super fund is not as simple as just looking at the running costs on a year by year basis, but also what you intend to do with the money inside the fund. For example, a common strategy is for self-employed to purchase their business premises inside superannuation. After taking into account the rental income, this may significantly increase the return of the fund net of expenses. 


The bottom line is, once you start to get around the $250,000-$300,000 mark it could be an option worth considering. However, keep in mind, starting your own super fund means that you will be taking on additional responsibilities as Trustees of the fund, and you need to ensure that you have the time required to manage your affairs.  


SMSF does not always mean a better outcome, and there is a lot to consider before you go down this path. If you would like to know more, or speak to one of our advisors, give us a call on 02 4926 8000 or email advice@hubadvisorygroup.com.au. 


Disclaimer: The information provided in this presentation is of a general nature only. It does not take your specific needs or circumstances into consideration. You should look at your own personal situation and requirements before making any financial decisions. Please seek personal financial advice prior to acting on this information.

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